The Dollar Found Some Footing in Asia
The dollar recovered some ground in Asia on Thursday. Early relief that the Federal Reserve did not hike rates further than expected began to evaporate in the face of an aggressive forecast.
Markets had anticipated the Fed’s 75-basis-point increase on Wednesday. They had factored in many more following a surprisingly high inflation reading last week. However, the dollar fell sharply following Chairman Jerome Powell’s news conference before stalling during the Asia trade.
It last bought a euro at $1.0440. It gained support from US Treasury yields, which fell dramatically on Wednesday before rising again on Thursday.
The dollar gained 0.4 percent to 134.25 yen as the Fed’s rise path contrasts sharply with the Bank of Japan’s vow to keep Japanese interest rates close to zero. Despite stronger-than-expected job growth, the Australian dollar struggled to add much to a Wednesday rally. It was the last trading at $0.7016, up 0.2 percent.
The dollar index was trading at 104.96 after reaching a two-decade high of 105.79 on Wednesday.
The reversal of the dollar index and rates after the Fed raised rates by 75 basis points speaks more to increased short-term expectations than anything else. Fed members increased their forecasts for the benchmark funds rate peak. The median forecast was around 3.8 percent in 2023; substantially higher than the 2.8 percent median peak prediction given in March. That, however, was welcomed with immediate relief because it was slightly lower than the 4%-and-up that futures markets had predicted; and Powell’s remarks to reporters were devoid of surprises.
Sterling fell 0.3 percent to $1.2145 ahead of the Bank of England meeting later in the day, which should result in at least a 25 basis point rise; swap prices implied an 80 percent chance of a 50 basis point boost. Traders will also be watching numerous European Central Bank speakers intently after the ECB committed to managing borrowing prices for the currency bloc’s periphery following an extraordinary meeting on Wednesday.
The Bank of Japan meets on Friday amid a speculative assault on its yield-curve-control policy, which has resulted in volatile trading in Japanese government bonds this week.
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